Auto dealers are backing the bills in an attempt to uphold current sales models

Tesla Motors may see its stores banned in New York thanks to a pair of bills that look to protect auto dealers.

Tesla has its own “Tesla Stores”, which act as showrooms for customers. There, they can see the models and even test drive them before making a purchase online from the Tesla website. Tesla does this as opposed to selling its vehicles to auto dealerships.

But a new pair of bills, referred to as A07844 in the Assembly and S05725, may put an end to that in the state of New York. The bills would make it illegal to license -- or even renew licenses -- for all Tesla Stores within New York state borders.

In addition to a ban on renewing licenses for existing Tesla sites, the bills also make it illegal to license any future stores; amends New York's vehicle and traffic laws regarding "unfair practices by franchisors," and prevents New York from issuing/renewing the registration of any car dealer where a manufacturer holds a controlling interest (unless that certificate was issued before July 1, 2006).

The bills were submitted just before the New York Legislature adjourned for the summer. This means that they will sit in the New York State Assembly until January 2014 when it returns. No decisions were made regarding the bills before it adjourned.

As you can probably guess, Tesla isn't too happy about this. The electric automaker issued a statement last week regarding the bills:

The bottom line for New York consumers and New York suppliers is that if this bill passes, special interests in Albany will once again have gotten their way while robbing New Yorkers of choices in the marketplace, and Tesla will be put out of business in New York. The result would be that all of Tesla’s New York employees will lose their jobs. It means that New York-based suppliers to Tesla will lose business and New York consumers cannot buy the most advanced electric car in the world today. Banning Tesla from selling its vehicles is also a step in the wrong direction for reducing carbon vehicle emissions and the green environmental movement in New York. With the State of New York pushing so hard to lead green innovation supporting entire agencies for energy efficiency like NYSERDA, it is absolutely defies logic to ban Tesla from selling electric cars in New York.

From the beginning, Tesla’s goal has been to catalyze the market for electric vehicles and selling through intermediaries at this stage of the company will not work. For Auto Dealer Associations to claim that restricting competition is in the best interests of the public is wrong and defies obvious common sense. If we are kept out of New York, it forestalls progress and defeats innovation.

Tesla has created jobs in New York at both its stores and service centers and the sales of its vehicles go into supporting the local economy. Tesla remains committed to bringing electric vehicle technology and its customer focused sales and ownership experience to New York consumers, while complying with all local and state laws.

Back in April of this year, Tesla CEO Elon Musk openly fought for a Texas bill that would cut out the use of auto dealerships. The bill -- House Bill 3351 -- would allow distributors and manufacturers of electric vehicles (EVs) only to sell directly to customers without the use of dealerships. The bill was filed by Rep. Eddie Rodriguez (D-Austin).

Musk even said that if the fight for the Texas bill came down to a federal matter, he would either lobby Congress to pass legislation for the direct sales of EVs made by startup companies like Tesla (and tie it to an energy or transportation bill) or file a federal lawsuit to fight the state restrictions as unconstitutional violations of interstate commerce.

Musk is open to a dealership model at some point when sales increase, since dealerships do promote competition and keep prices down.

Wether it's benificial or not is very simple:Manufacturer sells to dealership at cost+profit,Dealership sells to you at cost+profit.

Manufacturer sells to you at cost+ profit.

Which of the 2 will be cheaper for you?

It's really as simple as that. Want stuff to be cheaper cut out the middleman. Or, if you want to make money try to become the middle man. Trust me, i'm dutch, i should know.

You're still going to need show rooms with salesmen, you don't buy something as expensive as a car without research and a test drive. So there's still going to be employment. But i imagine the atmosphere is better as they don't have to sell the car to you specifically (to get a comission i mean), they just have to praise the car.

That said, dealerships won't go away. This because dealerships while a detriment to the consumer are a benifit to the manufacturer. It allows them to sell more cars.

In part because of dealership salesmen but what i'm talking about is channel stuffing. Car companies count sales to dealerships as sales, what happens to the car next isn't the manufacturers problem. If the dealership goes bust because they bought too many cars, the manufacturer isn't affected.

GM dealership inventory right now is hovering around 800,000 cars. that's more then double since the bankrupcy and enough cars to shut down GM completly for half a year and nobody would notice.

In a way this could be benificial. Dealerships are like a buffer to manufacturers, should a paticular model be a flop maybe a few dealerships go bust but not the company itself. That said, the system is far more susceptible to abuse so i'd say it should go. Afterall one could argue that if the car company isn't able to continue producing succesfull cars why should they be allowed to continue to exist? I see no reason why a cash buffer couldn't do exactly the same job as a dealership for a buffer in case of bad times...

quote: That said, dealerships won't go away. This because dealerships while a detriment to the consumer are a benifit to the manufacturer. It allows them to sell more cars.

No, once again you are commenting on a country you know nothing about.

The US is a very large country with a lot of people. Our mass transit is horrible. We say "driving is a privilege" but it's really a necessity of life. Just about everyone in this country needs to drive to live. The only city with an adequate metro system is NYC and it's surrounding cities. Even places like Baltimore and DC are mostly unreliable for mass transit. You cannot get everywhere you need and the wait is horrible(sometimes dangerous) at off peak times.

That being said, the number of vehicles sold every year will not go up or down because a dealer exist or not because we have to buy the cars anyways. At least not a significant change. Removing the dealerships can decrease price and cause a shift to more premium trims/models.

quote: Removing the dealerships can decrease price and cause a shift to more premium trims/models.

I could see this happening. If you've seen the difference between dealer cost and even MSRP, especially on luxury vehicles, eliminating the middleman would definitely move a lot of people upmarket on their purchases. The manufacturers are already satisfied with their profit margins so prices would only go down. Granted like someone else mentioned, manufacturers would have to have showrooms (to see the cars and for test drives) but servicing could remain separate.

The price of cars (or any good) isn't set (only) by how many people mark up the price, it's set by how much consumers are willing to pay (the demand curve), which doesn't change based on who owns the point of sale. So your two scenarios would be:

Manufacturer sells to dealership at cost + profit,Dealership sells to you at cost + profit.andManufacturer sells to you at cost + (2x profit).

Assuming the supply side remains constant, which it may or may not. The question would be, is it cheaper for dealerships to have control over all their dealerships, with the bureaucracy that entails (middle management, oversight, accountants, setting prices for different markets, dealing with the variance in local laws, etc.) or to offload that to experts at the local level by use of an independent dealership system? My guess is that central control is more efficient up to a certain size, then a dealership model becomes more cost efficient - which is exactly what Musk meant with his comment that, as the company grows, they plan on going to an independent dealership model.

None of this, however, suggests that government should mandate one model over the other - in fact, it suggests the opposite. Mandating a dealership model is about setting up barriers to entry for small competitors, who can't get their models into showrooms. Those barriers to entry ensure that the major manufacturers AND the dealerships can make economic profit (by restricting substitutes for their goods, ECON 101 folks, which would shift the demand curve, resulting in lower prices and fewer units sold).

Ultimately, then, this isn't about sales models at all (either which is better for the consumer, or which is better for the sellers) it's about removing competitors from the market - which is always better for the seller.

quote: That said, dealerships won't go away. This because dealerships while a detriment to the consumer are a benefit to the manufacturer. It allows them to sell more cars.

The greatest benefit to the manufacturers that dealers provide is the offloading of personnel, infrastructure, liability, and equipment costs to an independent entity known as the dealer, while still maintaining a lot of control through the franchise contract.

They also buy the vehicles using an open ended loan called a floorplan from the manufacturer, thus moving the vehicles accounting wise off the manufacturers books.

It's a win win for the auto manufacturers,

why would they want to own their own stores and have their own employees with all the hassles that go with it?